Costco and the disturbing philosophy of the business class

Many "liberals" have expressed their preference for COSTCO over their "evillllll" competitor WalMart/Sam's Club. I'm not a member myself (I see no need for thirty-packs of anything ), but I've always been impressed by the affordable quality of their products-along with their reputation for treating employees fairly and generously.

Apparantly, this is NOT acceptable to the poobahs of the business press. Excerpted from Limited, Inc:

bloodsucking for fun and profit
Sometimes it is nice to see the face of the virgin in a gimme cup. And then, sometimes it is nice to see the face of Satan in a NYT article.

The article in question is about Costco. Costco is famous for paying its CEO a reasonable salary, as such things go, and doing the same for its employees. The latter policy has pissed off certain Wall Street poobahs.

Emme Kozloff, for instance:

“Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco's workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.

"He has been too benevolent," she said. "He's right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden."

And here is a Deutsche bank hoodlum:

“Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."”

(Limited Inc's radical take on this: Dreher and Kozloff are obviously sick with that sickness unto death that is the Bush culture. LI however, wishes them no other ill than a compensation package and a health plan like a Walmart greeter’s, children who hiss and spit at them in their old age, and a lifetime of permanent nightmares in which they wander, penniless, through the ruins of a country that they have made a career of debauching, chased by the people they have systematically **** upon who are armed with a healthy quantity of good dreamtime steel pipe. From all of us at LI, at least, they have our undying hatred. We just want them to pick up a “little more of the burden” of the inequality they have spread around with such abandon.

Employees are shareholders. Their interest is not in stocks, but in employment. They expect that as the company performs well and they perform well, they are justly compensated. Again, employees are not commodoties, they are people with their financial livelyhood invested almost solely into the support of the company.

“Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."”

Haha, perfect logic. They're making other retailers look Scroogish. They clearly need to change their ways.

This stuff is amazing. I mean here we have people making a minimim of $100,000 a year commenting on the work that Costco workers do, saying they make too much. These folks are out there throwing 50 lbs bags of dog food onto a shelf, and working long hours at a job where they do not sit in front of a TV all day and surf the internet (my sister had one of these jobs, and it was amazing to see how lazy, bored, fat, and miserable these folks become).

$17 an hour if you have a family is not get stinking rich kind of money. Granted they do have an inside track on the best deals on 48 pack of toilet paper.

People who live in glass houses should not throw stones at those with real jobs.

This stuff is amazing. I mean here we have people making a minimim of $100,000 a year commenting on the work that Costco workers do, saying they make too much. These folks are out there throwing 50 lbs bags of dog food onto a shelf, and working long hours at a job where they do not sit in front of a TV all day and surf the internet (my sister had one of these jobs, and it was amazing to see how lazy, bored, fat, and miserable these folks become).

$17 an hour if you have a family is not get stinking rich kind of money. Granted they do have an inside track on the best deals on 48 pack of toilet paper.

People who live in glass houses should not throw stones at those with real jobs.

Amen. I lolve to hear my coworkers whine about how hard their jobs are. Not to deny that there is serious stress and time pressure in some planning jobs, but meetings and typing reports on a computer is different.

The financial analysts are *paid* to complain about Costco. It is part of their job to point out inconsistencies between Costco's business formula and other comparable organizations. You may or may not agree with what the analysts wrote, but being paid to do one thing is different from mouthing off on their own free time.

Unfortunately, I think "overpaying" workers just to be a decent person won't in the long term. Unless Costco gains a significant advantage by paying more ( such as increased worker productivity or customers willing to pay more for their products b/c of this), their competitors will gain a significant advantage. I'm not saying paying these workers more is necessarily a worse option, just that it needs to have real economic advantages. If not, the people trying to do good will lose to those who don't, their stock price will fall, stores will close and Walmart will buy them out ( or some similar negative outcome).

I personally believe any real economic progress for working class people needs to be from the government. The problem is how to do it and not cause the economy to crash?

I think it's all in the market and the analysts were doing their job -- analyzing. In their analysis, Costco is using inefficient business practices. What they fail to account for (ask a green econ 202 student) is goodwill.

Is the goodwill resultant from their business practices enough to offset the prima facie inefficiencies?

Who knows. I guess we'll see when Costco sinks or swims. IMO it's nice to see the market providing alternatives in the bulk retail sector so that we can see where consumers' preferences lie.

I'm not very familar with CostCo other than I drive by one on the way home from work. It sounds like they do not fit the Stock Exchanges model of profit profit profit? I think something can be said for what Costco is doing, there are benefits to paying employees more, or providing benefits other retailers do not - employee longevity, keeping turnover down. Sure they might not conquer the world, and I think thats where there is rightful criticism from potential outside investors. That doesn't make it a failed or doomed company. I like the sounds of the idea that maybe they are actually not being subsidized by the govt. in some ways such as Wal-mart (in a round about way)...

Given the choice between joining Sam's Club and joining Costco, I'd definitely join Costco based on what I've read here. If more people based shopping choices on if the employees were being treated how we expect to be treated, maybe all employees would have better jobs, pay and benefits.

I'm not very familar with CostCo other than I drive by one on the way home from work. It sounds like they do not fit the Stock Exchanges model of profit profit profit? I think something can be said for what Costco is doing, there are benefits to paying employees more, or providing benefits other retailers do not - employee longevity, keeping turnover down. Sure they might not conquer the world, and I think thats where there is rightful criticism from potential outside investors. That doesn't make it a failed or doomed company. I like the sounds of the idea that maybe they are actually not being subsidized by the govt. in some ways such as Wal-mart (in a round about way)...

Interesting, broader questions are raised by your argument, vlaude. Is the ONLY purpose of economics as rapid growth as possible? Is this a valid economic model for a world scraping up against Malhusian/environmental impact limits (the only reasons we don't see the direct, immediate impacts of our consumption in the United States is because we've off-shored so much of our heavy industry).

BKM, I don't have answers either. But from an investment standpoint I think one might raise an eyebrow at their practices. From a standpoint that all the potential money isn't being sucked out of the business at the expense of the common employee. I think support for business practices more to this liking and local (regional) manufacturing is a lot more common in places like Germany.

Might be interesting to see how Costco's employees live. Things like debt, type of housing, cars they drive,childrens education and see how the closest bank to the Costco feels. If I am not mistaken Henry Ford received the seme kinds of critique about a 100 years ago.

Might be interesting to see how Costco's employees live. Things like debt, type of housing, cars they drive,childrens education and see how the closest bank to the Costco feels. If I am not mistaken Henry Ford received the seme kinds of critique about a 100 years ago.

Interesting comparison. Ford's $5 day certainly created a strong middle class uplifting all of the north american economy and sharing the wealth.

Ford while being worth billions, was an odd man. On one hand a blatant racist but he loved George Washington Carver. He lived in what could be considered a modest house for a man of his means, bbut kept the family farm going. In fact it was only up to about 5 years ago that Ford (the company) stopped tilling the fields down the street from me, and instead decided to grow an office park instead of soybeans. Perhaps he felt he had more than enough money than he needed, and if he treated his employees well, the employees would buy more of his product?

Ford was selling a then-novel product at an amazing price. His profits had to have been astronomical in current dollars. He was afforded a luxury that I doubt CostCo has. CostCo is in an industry that is relatively mature and has competition at its price point.

If I am not mistaken, the Model T was the only vehicle of at or near its quality at its price point.

Ford was selling a then-novel product at an amazing price. His profits had to have been astronomical in current dollars. He was afforded a luxury that I doubt CostCo has. CostCo is in an industry that is relatively mature and has competition at its price point.

If I am not mistaken, the Model T was the only vehicle of at or near its quality at its price point.

And how did he afford to sell millions of them for such a cheap price? it was because of a growing middle class that was fueld by a $5 work day. When the auto companies started to offer $5 a day, everyone else in lucrative sales had to do the same.

Instead of a race where everyone wins, Costco and Sams are in a giant race to the bottom. I am all for Costco to win simply because they offer the same thing but pay their workers better. We are living in an economy where there are too few winners and way too many losers. It is simply not sustainable.

Check this out, Japanese companies are begining to hurt because the big three are losing market share

My point? Japanese manufacturers are no longer able to make money here, we will lose these jobs to Korea and India as well. Until we stop looking to fill our houses with lots of cheap crap we don't need and start buying stuff that actually recirculates money in our economy, we will continue to lose jobs, and have a increasinlgky harder time making if fron one pay check to the next.

The Cninese are now in negotiations to buy a surplus, ultra-high tech engine plant from its European owners in South America. They'll disassemble the whole thing and move it lockl stock and barrel to china. A major jump in production capacity.

The same guy who brought Subaru to the United States in the 70s?? is now planning to bring a mid-level semi-luxury Chinese sedan (i.e., Buick/Honda Accord competitor) to the United States. It will be styled by Pinafarina, the famous Italian design firm. Expect a much shorter learnign curve for Chinese autmakers verus KOrea. Let's be honest, the nicer Hyundais are far nicer, far better built, and better equipped than any Buick or (especially) Pontiac. Why will ford or GM even exist when we can buy a Chinese car. US makers can't compete on quality, price, or unique image/style. GM should just get it over with, declare bankruptcy and liquidate the company, spinning off the few valuable parts (pickup trucks, Corvettes, etc.)